Hotel Revenue Leaks... or the Holes in the Bucket
By Mark Davis General Manager, Hilton Los Angeles Universal City | October 16, 2016
The true art of Revenue Maximization (RevMax) at the elementary foundation is segment mixology including all points of revenue generation. I label this the perfect RevMax Cocktail with the ingredients engineered for total consumption of market share by segment from top rate to the lowest, while also considering each element of contribution to NOI margin. In terms of maximum RevPAR, it is simply maximum achievable occupancy at the highest deliverable ADR. However, before the hotel can celebrate success the team must also have a discipline to avoid the typical erosion of RevMax thru Rev-Leak! Every hotel must have an effective team balance to deliver the sweet spot: the most profitable revenue possible per available room. There is rarely a discovery more damaging than an empty room when market demand was sufficient to fill them all. The old saying still prevails, "nothing happens until somebody sells something, and high-fives are due when everybody sells everything."
But not so fast. As a repositioning expert I find most low hanging fruit in what I term Rev-Leak: The Holes in the Bucket which destroy true maximization. It takes discipline, leadership, proper parameters, and a cohesive team to avoid losing impact from this typically undiscovered phenomenon of delusional revenue. I define delusional revenue as the myth that if you maximize revenue, you will maximize profit. The engaged owner/investor will never trade or accept profit erosion for mere revenue. In fact, when revenue improves there is a natural expectation that profit flow-through also dynamically improves.
Rev-Leak has many facets presented in this article that are "Holes in the Bucket" to watch and avoid falling short to optimize RevPAR performance. Hotels with the right Mixology practices that manage to avoid these leaks will no doubt realize true and improved RevMax as well as RevPAR and GOPPAR. The 'Holes in the Bucket':
- Imbalance of Incentives
This occurs typically when team structure divides the incentive in cross constructive manners. Rewards will always drive action and motive greater than any other factor. Group teams will protect and actually have a tendency to steal inventory when incentive is based solely on production to a gap over goal. Group Sales will sell more group rooms well below the market transient demand if their incentive is unique to Group Production as the only gate keeper. Revenue Managers will steal group room book-around if their incentive is weighted toward isolated transient segments. Revenue Managers have been known to drop the Transient discount rate well below the Group rate to drive book-around to feed their incentive plan if driven solely by Transient and Discount production.
The big win-win is when the incentives are based on team efforts to maximize dollars per available room as the gatekeeper. It seems elementary, right? However, one may be surprised what you find if the hotel has a rookie or rebel (manipulating segments toward incentives) in either position that does not protect the "sound balance" and goal of true Revenue Maximization. Set the gate keeper on growth in RevPAR vs. segments and balance both discipline incentives with team goals for segmentation. Nobody wins big over the other without the hotel truly maximizing RevPAR.
- Absence of Sound Sell Out Strategy
There must be a hunger and determination to Sell Out every day possible. This process begins with the right Mixology: discovery of market demand generators and property detractors, protecting dates and stay through patterns for anticipated and confirmed demand, sound pricing models ahead of demand pickup for specific inventory, filling in base business to create contained demand when generators are absent for dates and valleys, etc., RevMax 101. To plug this Rev-Leak there must be a "fill to capacity check list discipline" to ensure all hotel teams are on board for those dates and start managing as soon as discovered. This check list is property specific, but must include as a minimum: a focus on all room inventory available, limiting renovation process, confirming all guaranteed reservations for an accurate billable valid Credit Card starting several days out to avoid capturing no-show revenue, anticipating no shows and overselling the trend, having a sound walk policy proactively in place to safely push the envelope, having an established cancelation policy that is enforceable in time to rebook and a cohesive "day of" communication between operations and front desk so no room sleeps empty.